U.K. September Mortgage Approvals Fall Amid Credit Squeeze

U.K. mortgage approvals fell in
September as tighter credit conditions and falling consumer
confidence kept more potential property buyers out of the market
for home loans.

Lenders granted 50,967 loans to buy homes, down from 52,347
in August, the Bank of England said today in London. Economists
forecast a drop to 50,600, according to the median forecast of
20 economists in a Bloomberg News survey.

U.K. house prices fell for a sixth month in October and
declines may accelerate in the coming months, London-based
property researcher Hometrack Ltd. said today. The Bank of
England expanded its so-called quantitative easing plan for the
first time since 2009 this month to head off a credit squeeze as
a result of Europe’s sovereign debt crisis.

“Mortgage approvals are going to be nudging down over the
next few months from the knock-on effect of funding
disruptions,” said Amit Kara, an economist at UBS AG in London.
“Whether or not the bank does more quantitative easing will
depend on the bank funding market.”

Mortgage lending rose by 346 million pounds ($554 million)
in September from August, the Bank of England said. Consumer
credit increased by 629 million pounds.

Economic Concerns

The pound remained lower against the dollar after the
report was published. It traded at $1.6017 as of 9:34 a.m. in
London, from $1.6130 on Oct. 28.

Concern that the economic recovery will weaken further has
sapped consumer confidence and property demand, Hometrack said.
It reported that home values fell 0.2 percent in October from
the previous month. A measure of shoppers’ sentiment fell 2
points in October to minus 32, the lowest level in more than 2
1/2 years, GfK NOP Ltd. said Oct. 28.

As Europe’s debt crisis worsened in recent months, the
three-month pound-denominated London interbank offered rate, or
Libor, rose 0.15 percentage point since Aug. 1 to 0.99 percent.
European officials agreed last week to a rescue plan to prevent
the turmoil in Greece from spreading across the euro region.

All nine members of the Bank of England’s Monetary Policy
Committee voted to expand their bond-purchase program by 75
billion pounds to 275 billion pounds on Oct. 6. The bank also
kept its key interest rate at a record low of 0.5 percent.

“We could see in part from private discussions with the
banks that this was in danger of really starting to impact again
on the U.K. economy in terms of a credit crunch,” Bank of
England Markets Director Paul Fisher said in an interview last
week. “There was sufficient downward momentum in the U.K.
economy to justify 75 billion” pounds of QE.

GDP Outlook

While economic growth in the third quarter probably
rebounded from one-time disruptions in the previous three
months, underlying activity is weakening and Fisher predicted
there is a “50-50” chance the economy will shrink in the
current quarter. The Office for National Statistics will publish
gross-domestic-product data for the three months through
September at 9:30 a.m. tomorrow.

A measure of M4 money-supply growth the bank uses to assess
the effectiveness of its asset purchases rose to 4.9 percent in
the three months through September on an annualized basis, the
central bank said today. That’s the highest since the fourth
quarter of 2008 and compares with a 3.8 percent rate in the
three months through August. The gauge excludes financial
companies that specialize in intermediating between banks, such
as holding companies and non-bank credit grantors.

Total M4 fell 0.4 percent on the month in September and was
down 1.7 percent on the year, the Bank of England said.